Moody's cuts long-term ratings for AT&T Broadband; AT&T, Comcast on review for possible downgrade

Moody's Investors Service lowered the long-term ratings of AT&T Broadband and its subsidiaries (senior unsecured to Baa2 from Baa1) following the announcement by AT&T that it has agreed to sell its cable TV assets to Comcast Corp. The ratings remain on review for possible further downgrade. The long-term ratings of AT&T Corp. (senior unsecured at A3) also remain on review for possible further downgrade. And, Comcast Cable's senior unsecured debt raring of Baa2, is under review for possible downgrade.

Comcast's review for possible downgrade was originally initiated on July 9 when Comcast launched a bid for AT&T Broadband valued at about $58 billion. The immediate one notch downgrade of AT&T Broadband effectively sets a new ceiling for possible rating outcomes following the review, Moody's said. The Broadband review will focus on the new company's credit metrics and its intermediate-term ability to reduce debt and leverage given the significant capex requirements for the operations, and particularly for the AT&T Broadband systems. Those potential integration challenges would result from merging an operation with a cable footprint, which is currently over 150% larger than that of Comcast's today and clearly the largest acquisition by far in the company's history.

The on-going review of AT&T ratings has been tied to resolution of plans for AT&T Broadband. This transaction helps provide considerable clarity to the net debt retained by AT&T (i.e., the pro forma capitalization of AT&T Communications Services as a stand-alone enterprise), which is currently estimated at $18 billion, Moody's said.

Fitch keeps AT&T, Comcast on watch, negative

The long-term debt and commercial paper ratings of Comcast, Comcast Cable Communications, TCI Communications and MediaOne Group remain on negative rating watch with the merger announcement between Comcast and AT&T Broadband in a transaction valued at $72 billion, Fitch said Thursday. The current senior unsecured debt ratings for Comcast, Comcast Cable, TCI Communications and MediaOne Group are BBB, BBB+, A- and A-, respectively. In addition, AT&T's long-term rating of A- remains on negative rating watch.

The merger will face regulatory scrutiny, but if approved, the combined company will pass 38 million homes and have around 22 million subscribers, Fitch said. The new company will continue to grow its widely offered digital cable and cable modem services, and will focus a material amount of its resources in expanding and penetrating cable telephony.

From a financial perspective, considering a year-end 2002 closing date, the combined EBITDA of AT&T Comcast could approximate $6 billion to $7 billion assuming some continued margin improvement at AT&T Broadband along with continued core EBITDA growth for both companies, Fitch said. From a debt perspective, the combined gross debt could approximate $24 billion to $26 billion at closing assuming the conversion of Microsoft's QUIPs to common stock, monetization of the Time Warner Entertainment stake partially offset by funding needs at AT&T Broadband, Fitch said. Given this potential debt level, along with continued AT&T Broadband margin improvement and continued core EBITDA growth, AT&T Comcast should generate debt-to-EBITDA less than 4.5 times at closing and strengthening thereafter, which would be representative of a BBB rating for a cable company of this magnitude, Fitch said.

Moody's revises outlook for Western Power, 49% owned by Mirant, to negative

Moody's Investors Service on Thursday changed the outlook to negative from stable on the bonds of Western Power Distribution Holdings UK (Baa2) and its rated subsidiaries, following the downgrade of Mirant Corp. to Ba1 from Baa2. Mirant is the ultimate owner of 49% of Western Power, but has 50% management control. The negative outlook , reflects the fact that, as a result of its more stretched financial profile, Mirant may look to extract more cash payments by way of dividends from the Western Power group, which could put the group under some financial pressure. It may also create some uncertainty as to Mirant's continued ownership of these companies, Moody's said.

Fitch cuts Kerr-McGee exchangeables to BBB, convertibles to BBB-

Fitch downgraded Kerr-McGee Corp.'s senior unsecured debt and its DECS (debt exchangeable for common stock of Devon Corp.) to BBB from BBB+, and its convertible subordinated notes to BBB- from BBB. The F2 rating for Kerr-McGee's commercial paper was affirmed and the rating outlook is stable. Fitch said the downgrade was due to a weaker-than-expected 2002 production forecast, a lack of hedged production and a poor titanium dioxide market.

In light of the recent reductions in forecasted 2002 production, Fitch said it does not believe that Kerr-McGee's credit profile currently supports a BBB+ rating and Fitch is less confident in Kerr-McGee's ability to meaningfully reduce debt in the intermediate term through free cash flow. Fitch believes Kerr-McGee's free cash flow in 2002 will be lower than originally anticipated. Another item of concern is the fact that Kerr-McGee does not hedge a significant amount of production, which could potentially weaken revenue and EBITDA further in 2002, Fitch said. Also, Kerr-McGee's chemical operations which have provided diversification benefits to the cyclicality of the E&P business is having a weaker year than previously expected.

The ratings do take into consideration Kerr-McGee's size and production growth in the intermediate term and does recognize its market position, Fitch added. Kerr-McGee's recent performance was solid due to historically strong commodity prices, but weaker chemical operations partially offset the results. Based on mid-cycle pricing assumptions in 2002, Fitch said it expects interest coverage to be in the range of 4.5x-5.0x and debt-to-EBITDA to be in the range of 3.0x-3.5x. However, Fitch also expects Kerr-McGee to divest a modest amount of assets in the near to intermediate term and use the proceeds of such sales to reduce debt.

Moody's confirms Starwood, but revises outlook to negative

Moody's Investors Service on Thursday confirmed Starwood's Ba1 senior implied rating and the convertible zero coupon senior notes at Ba1, among other ratings, but changed the rating outlook to negative reflecting the increased risk of earnings volatility due to the weak economy, unfolding political events and lingering safety concerns regarding air travel, as well as the likelihood that it will take time for the company's earnings to rebound, resulting in weak debt protection measures for the rating category.

Moody's downgrades Hilton Hotels senior ratings to Ba1, converts to Ba2

Moody's Investors Service has downgraded the senior ratings of Hilton Hotels Corp. to Ba1 from Baa3 and the ratings on the convertible subordinated debentures to Ba2 from Ba1. Moody's said the downgrade reflects the significant negative impact on the lodging industry following the events of Sept.11 and the resulting deterioration of the company's debt protection measures, increased risk that earnings could be more volatile in the near to intermediate term due to unfolding political events and the likelihood that it will take time for the company's earnings to rebound, resulting in a slower pace of debt reduction. The outlook is negative reflecting the risks that the uncertain economic and political environment pose for Hilton, as well as the company's leverage that remains high for the rating category, Moody's said.

Fitch cuts Providian senior rating to B+, trust preferred to CCC+

Fitch lowered the senior rating of Providian Financial Corp. to B+ from BB- and trust preferred rating to CCC+ from B. The ratings for Providian National Bank are unchanged, Fitch said, and the ratings for both entities have been placed on watch, negative. Fitch said the downgrade reflects that unsecured creditors have less asset protection as liquidity at the holding company has diminished greater than anticipated. Fitch does recognize that near-term obligations of Providian will likely be met, but longer-term prospects will depend on the financial strength of the overall enterprise. There is about $851 million of senior debt issued out of the holding company, through two convertible notes.

The watch designation signifies Fitch's concern surrounding the completion of certain restructuring objectives, namely asset sales, to improve the company's financial profile. Providian continues its efforts to sell international operations in the U.K. and Argentina and is working to structure a possible sale of around $3 billion of high risk receivables and while the sale of the portfolio would likely limit future exposure, Fitch believes that a sale of these receivables would require a significant discount and result in a sizable loss for the company. The watch also reflects continued challenges facing the company's liquidity profile as access to its traditional funding sources remains constrained, Fitch said.

Fitch said it would expect that resolution of the watch would follow the progress of certain strategic objectives during first quarter 2002. Failure to implement the necessary restructuring initiatives could further impair the ratings of Providian and the bank unit.

S&P affirms XL Capital

Standard & Poor's affirmed various ratings on XL Capital Ltd., including the A+ senior debt rating, and its insurance and reinsurance subsidiaries. The outlook is stable. The ratings had been placed on watch following XL's announcement that it would incur estimated losses of $680 million (net after-tax) relating to the World Trade Center disaster on Sept. 11. Specifically, the potential impact of these losses on XL's capital adequacy was a cause for concern. Subsequently, XL disclosed a thorough ground-up analysis of its loss estimate, which alleviated most concerns about the group's capital adequacy and prospective operating performance. In addition, XL has successfully raised aggregate net proceeds of $812 million in common equity via a secondary offering, and known potential exposures to Enron, albeit modest, should not materially affect the company's earning, S&P said.

Due to already improving market conditions following the WTC disaster, S&P said XL is well-positioned to capitalize on rate increases and the need for capacity as of Jan. 1 renewals. XL's underwriting conservatism and prudent risk selection should complement pricing and operational initiatives started in 2000, positively affecting XL's earnings performance into 2004. For 2002, XLC's capital adequacy is expected to remain at 175% or above, and ROR will be about 15.0% with a combined ratio of about 98%.

S&P rates new United Business Media convertibles BBB

Standard & Poor's rated United Business Media (Jersey) Ltd.'s recent issue of $400 million of 2.375% exchangeable notes due 2006 at BBB. United Business Media (Jersey) Ltd. is a unit of United Business Media plc.

Moody's downgrades ACT Manufacturing

Moody's Investors Service downgraded ACT Manufacturing, Inc., including cuttings its $100 million 7% convertible subordinated notes due 2007 to C from Caa3 and its $87 million guaranteed senior secured term loan facility due 2005 and its $150 million guaranteed senior secured revolving credit facility due 2005 to Caa1 from B2.The outlook remains negative.

Moody's said it downgraded the ratings because of ACT Manufacturing's "severe liquidity problems and acknowledgement that a bankruptcy filing could be forthcoming."

"The company is currently in default under its secured credit agreement and the lenders have refused to agree to any additional waivers," Moody's noted.

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